As area malls and retail businesses are preparing for what they hope will be a rush of shoppers this weekend, families make their last-minute lists for back-to-school –– spurred by the promise of tax exemptions — but for how long?

THE ISSUE: Across the nation, a decline in state participation suggests that sales tax-free weekends may not deliver as much benefit as it once boasted — possibly closing in on an end to the tradition.

LOCAL IMPACT: At least for now, Oklahoma and 15 other states are still backing a sales tax weekend this year.

As area malls and retail businesses are preparing for what they hope will be a rush of shoppers this weekend, families make their last-minute lists for back-to-school –– spurred by the promise of tax exemptions — but for how long?

Oklahoma’s annual sales tax holiday begins at 12:01 a.m. Friday and will end at midnight Sunday. Certain clothing and shoe purchases are exempt from sales tax only during this weekend. Qualified items are exempt from state, city, county and local municipality sales taxes.

Since the inception of sales tax holidays, many states have created them around certain products and industries.

In 2017, 14 states will hold clothing sales tax holidays, seven states will have school supplies sales tax holidays, five states will have computer sales tax holidays, and four states will have Energy Star products sales tax holidays.

Oklahoma is one of only 16 states to use sales tax holidays for 2017, down from a peak of 19 states in 2010.

A suggested reason for the decline in participation is that sales tax holidays represent poor tax policy, costing states revenue while providing little benefit, according to a new report from an independent tax policy research organization called the Tax Foundation, authored by Executive Vice President Joseph Henchman and Director of State Projects Scott Drenkard. The report can be found at taxfoundation.org.

“Sales tax holidays have enjoyed political success, but recently, policymakers are re-evaluating them,” the report states. “Rather than providing a valuable tax cut or a boost to the economy, sales tax holidays impose serious costs on consumers and businesses without providing offsetting benefits.”

The report listed some key findings:

• Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence (including a new 2017 study by Federal Reserve researchers) shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.

• Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a paltry 4 to 7 percent discount leads many larger businesses to lobby for the holidays.

• Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is an implicit recognition that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.

Georgia is the latest state to drop its holiday, after policymakers concluded that it did not spur additional economic activity. They follow Massachusetts in 2016, which dropped its holiday out of revenue concerns.

At first glance, sales tax holidays seem like great policy. They enjoy broad political support, with backers arguing that holidays are a highly visible form of tax cuts and provide benefits to low-income consumers. Politicians and other supporters routinely claim that sales tax holidays improve sales for retailers, create jobs, and promote economic growth.

Supporters claim that sales tax holidays stimulate the economy. They argue that, first, individuals will purchase more of the exempted goods than they would have in the absence of a holiday, and second, consumers will increase their consumption of nonexempt goods through “impulse” purchases, paying taxes that would otherwise not have been collected.

Rather than stimulating new sales, sales tax holidays simply shift the timing of sales. In 1997, the New York Department of Taxation and Finance studied its clothing sales tax holiday and found that while sales of exempt goods rose during the holiday, overall retail sales for the year did not increase.

On the contrary, the report shows shoppers waited until the holiday to purchase exempted goods, thereby slowing sales in the weeks prior to and following the holiday. A University of Michigan study looking at computer purchases during sales tax holidays found that this timing shift “accounts for between 37 and 90 percent of the increase in purchases in the tax holiday states over [a] 30-week horizon,” depending on price caps and particular products.

Despite their political popularity, the Tax Foundation report states sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.

The history of sales tax holidays

Ohio and Michigan enacted the first sales tax holidays in 1980 when they offered one-time tax

holidays for automobile purchases. But it was New York that sparked the modern trend, with the

first sales tax holiday for clothing in 1997. New York’s objective was to tackle border shopping,

the phenomenon of residents traveling to nearby states to take advantage of lower sales tax rates

(particularly clothing purchases in New Jersey). The sales tax holiday gave hope of reducing border

shopping without the need of actually having to reduce the state’s sales tax rate.

How it works

Retailers are required to participate and may not collect state and local sales or use tax on most footwear and clothing that are sold for less than $100 during the holiday, the Oklahoma Tax Commission website states.

Keep in mind, only certain clothing and shoe purchases are exempt from sales tax. For this purpose, “clothing” means all human-wearing apparel suitable for general use. An item that is $100 or more is taxable.

Eligible items sold to purchasers by mail, telephone, email or internet also qualify for the sales tax exemption if the customer orders and pays for the item and the retailer accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period.

Items not exempt are “any special clothing or footwear that is primarily designed for an athletic activity or protective use that is not normally worn except when used for athletic activity or protective use for which it is designed,” states a press release at ok.gov.

Accessories including jewelry, handbags, luggage, umbrellas, wallets, watches, and other similar items carried on or about the human body are considered taxable. The rental of clothing or footwear is also taxable, according to the website.

It should be noted that there are certain items that qualify that many may not expect on the list. For instance, according to the OTC’s list of exemptions, Oklahomans are allowed to purchase things like, diapers –– for children or adults, baby receiving blankets, costumes –– though costume masks are not exempt, slippers and wedding apparel. So, in certain instances, the tax-free weekend can be beneficial even for residents who may not have school-age children.

The holiday was passed by Legislature in 2007 to benefit both consumers and retailers in the state by providing sales tax-exempt shopping. It is an effort to help boost businesses, the economy and consumers by allowing them to save money when shopping for clothing and shoes.

For more information and answers to common questions on the sales tax holiday, as well as a listing of sales tax exempt items, visit the Oklahoma Tax Commission website at www.tax.ok.gov.

Some odd, but eligible purchases

A nonexclusive list of clothing exempt from sales and use taxes next weekend (Aug. 4-6):

Aprons (household and shop)

Athletic supporters

Baby receiving blankets

Bathing suits and caps

Beach capes and coats

Belts and suspenders

Boots

Coats and jackets

Costumes

Diapers, children and adult, including disposable diapers

Earmuffs

Footlets

Formal wear

Garters and garter belts

Girdles

Gloves and mittens for general use

Hats and caps

Hosiery

Insoles for shoes

Lab coats

Neckties

Overshoes

Pantyhose

Rainwear

Rubber pants

Sandals

Scarves

Shoes and shoelaces

Slippers

Sneakers

Socks and stockings

Steel-toed shoes

Underwear

Uniforms, athletic and non-athletic

Wedding apparel

List from Oklahoma Tax Commission website, ok.gov/tax.